The monetary policy committee (MPC) of Turkey’s central bank on July 24 cut its main policy rate (one-week repo) by 300bp to 43%. The move was in line with expectations, which foresaw a rate reduction of between 200bp and 350bp.

The authority also cut its overnight lending rate by 300bp to 46%, without fixing the symmetry of its so-called interest rate corridor as the overnight borrowing rate was also cut by 300bp to 41.5%.

The central bank occasionally scraps or limits one-week repo auctions to push local lenders to the overnight window for the sake of additional tightening within the interest rate corridor.

Since June 13, the authority’s weighted average cost of funding has fallen to 46%. It remained at 49% between May 26 and June 5. In parallel, market rates (TLREF) also fell into the 45-46%s.

Funding and market rates are now supposed to approach 43% in the coming few days.

Official monthly inflation to rise in July

The underlying trend of official inflation remained flat in June, the MPC said in its statement accompanying the rate-setting decision.

Leading indicators suggest a temporary rise in monthly inflation in July due to month-specific factors, it added.

Turkey’s government automatically hikes the special consumption tax (OTV/SCT) every six months via official producer price index (PPI) inflation.

Expectations remain high

The disinflationary impact of demand conditions has strengthened, while inflation expectations and pricing behaviour continue to pose risks to the disinflation process, the MPC reiterated.

The committee, meanwhile, closely follows up on geopolitical developments and trade tariffs.

Real lira appreciation

The tight monetary policy stance will support disinflation via moderation in domestic demand, real appreciation in Turkish lira (TRY) and an improvement in inflation expectations.

No fiscal tightening

Going forward, coordination of fiscal policy will contribute to the difinflationary process, the MPC reiterated.

It should be noted that Turkey’s fiscal policy never contributes to the disinflationary process, albeit the central bankers always call for it during tightening periods.

Rate cuts to continue

The MPC watches realised and expected official inflation data as well as the underlying trend. The step size of the upcoming rate cuts will be decided on a meeting-by-meeting basis.

After Turkey's current "orthodox" economic management team took the wheel, the central bank gradually hiked the one-week repo rate to 50% by March 2024 from 8.50% in June 2023.

Between March and December 2024, the rate stood at 50%.

In December, the authority launched its monetary easing cycle with a 250-bp cut. Two more 250-bp cuts brought the rate to 42.50% by March 7.

Imamoglu impact

On March 19, the government jailed Ekrem Imamoglu, mayor of Istanbul and main rival of President Recep Tayyip Erdogan.

On March 21, the central bank hiked its overnight lending rate by 200bp to 46% at an emergency meeting.

April brought the Donald Trump tariff turbulence and Israel attacked Iran in June.

On April 18, the MPC hiked its one-week repo rate by 350bp to 46%. It stayed put in the June 19 meeting.

35% y/y in July

On July 3, the Turkish Statistical Institute (TUIK, or TurkStat) said that inflation officially stood at 35.05% y/y in June versus 35.41% y/y in May and 44% y/y at end-2024.

The Istanbul-based ENAG inflation research group of economists presented very different findings. It calculated an inflation figure of 69% for June, following its assessment of 71% for May.

It is not advisable to plan, price or draw inferences based on TUIK data. There is widespread concern about the reliability of Turkey’s official data series.

Around 30% at end-2025

On May 22, the central bank left its end-2025 official inflation “target” unchanged at 24% y/y in its latest quarterly inflation report. The upper boundary of the forecast range was also kept unchanged by the authority at 29%.

The authority expected the seasonally-adjusted monthly inflation figures to edge up a little in 1Q25 (due to wage hikes and new year price/fee updates) in comparison to the 2%s in 4Q24.

The expectation is that the figures will fall below the 1.5%-level starting from 3Q25.

Central bank governor Fatih Karahan reiterated on May 22 that the seasonally-adjusted monthly figure would end the year at a little bit above the 1%-level.

On July 10, the central bank said in a blog post that a $10 increase in the average Brent oil price, seen following price hikes that followed Israel’s military move against Iran in June, would add 1.2 percentage points to Turkey’s end-2025 inflation and $1.25bn to the 2025 current account deficit.

On August 14, the regulator will release its next inflation report and updated forecasts.

In the coming months, TUIK is set to deliver further outcomes in the 1-2%s for the official monthly headline indicator.

Three rate cuts ahead in September, October and December

On September 11, the MPC will hold its next rate-setting meeting. As things stand, another rate cut is almost certain while the size of it is not certain as the MPC indicated in its statement as previously referred to.

October 23 and December 11 are the other remaining rate-setting meeting dates this year.

Rate cuts of 300bp in the next three meetings would bring the one-week repo rate to 34% while 200-bp cuts would mean 37% at end-2025.

As things stand, realisation will come in somewhere between 34% and 37% depending on the course of the official inflation releases.

Markets calm

In recent weeks, portfolio flows into Turkey turned positive and the country’s central bank reserves followed through on a recovery trend. Also, debt inflows have strengthened.

The USD/TRY pair is now in the 40s. The smooth nominal devaluation and real lira appreciation policy remains on track.

September 15

The finance industry has shown an interest in a trial concerning the main opposition Republican People’s Party (CHP) being conducted by the Ankara 42nd (Asliye Hukuk) Civil Court of First Instance.

The next hearing in this case will be held on September 15. The finance industry has indicated that Turkish markets will remain calm at least until then.

On June 11, bne IntelliNews noted: “A [government] seizure of the CHP or, in other words, the replacement of the current CHP management, is not something that can be envisaged for the near future.”

Do not, however, bet the farm on it. No one knows what Erdogan is planning. Perhaps, even he is not sure what his next step will be. In the run-up to the September 15 hearing, he will keep a keen eye on moves made by CHP leader Ozgur Ozel.

CHP the incorrigible

PHOTO: After this pose from Ozel, rumours suggested that Erdogan had decided to release the mayors of Adana, Antalya and Adiyaman.

Istanbul Blog writes: “I have been calling people to venues we previously announce, where security measures are in place. I know the day when I will invite them to the streets... But don't make me invite this nation to the streets. Come to your senses,” Ozel advised Erdogan on July 5 during a press conference he held after the president jailed the mayors of Adana, Antalya and Adiyaman.

Media describe such speeches by Ozel as hard-hitting. However, he is actually reminding Erdogan of what a "good kid" he is when he plays on his playing field.

“They [the Erdogan regime] want to eliminate the ballot box, the only thing the people have left, and they are rehearsing for this,” Ozel added.

“Neither the CHP nor the noble children of this nation will ever abandon the democracy they fought so hard to achieve. They will fight, at all costs, against those who want to eliminate the ballot box,” the jailed Imamoglu (@ekrem_imamoglu) wrote in a tweet on July 6.

The CHP acts as if it has not got the message from the ruling regime that the country is not a democracy anymore and that the only law in effect is the law of the jungle (the bigger eats the smaller), with all of the institutions of the "ex-Turkey" (elections, parliament, the judiciary and so forth) demolished.

If the CHP officials were to acknowledge that the ballot box was eliminated as far back as after the June 2015 elections, then they would need to renounce their salaries as public servants. Treasury grants to the party and the managements of the municipalities it controls are among other economic benefits the CHP enjoys.

If the rabble in the CHP continues to hold sway, content to exist as a so-called opposition obeying the regime's set limits, rather than as an actual opposition that would attempt to smash those limits to bring the regime down, do not expect any compelling leadership from this party.